Takeaways from Jakarta — Bank Rakyat Indonesia presented at Citi's
Indonesia Investor Conference on Aug.4-5.Below are key takeaways.
Loan growth — Loan growth of 20++%remains the long-term target.Demand
is strong,and management is working on constraints of CAR,physical
infrastructure and deposits.
NIM — NIMs expansion in 1H was temporary,due to deposit re pricing.
Trend is declining and will be compensated by Fee Income growth of 20pc.
NPLs — NPLs have peaked in this quarter.These were concentrated in the
Middle Market and relate to exporters impacted by the global environment.
The other source of NPLs tends to be small borrowers who expand
businesses too quickly and cannot manage them.
Capital adequacy — Capital adequacy is comfortable and to maintain it:1)
more lending will be directed towards SOEs with 0-50pc risk weighting,2)
further cut in dividend payout ratio from existing 30pc,and 3)rely on Tier II.
Micro loans — There is a need to increase outlets to push micro loans.
Historic 25%growth is due to physical bottleneck and not lack of demand.
LDR ratio — The high LDR is not a concern due to ample liquidity in the
system.To raise CASA share up to 60%(from 57%),new initiatives have
been taken that include new products,expansion of both e-channels and
outlets/branches and marketing initiatives.
Competition — BDMN is a competition and has an edge in application
processing time.Bank Jabar is the only regional bank that is a competition.
Others are too small.
Valuation
Our target price of Rp9,700 is based on a 2011E P/E of 12.1x,+0.5sd (0.95x)
above its average of 11.2x since 2006.We have not used +1sd,as applied to
peers,due to BBRI's high LDR.We believe P/E is the best valuation measure
for banking stocks in Indonesia due to their growth potential.
Risks
We assign a High Risk rating due to both operational risks and in line with our
quantitative risk-rating system,which tracks 260-day historical share price
volatility.BBRI has historically been a higher beta stock trading at a discount
to more stable BBCA.Downside risks to our target price include:1)lower-than-
projected growth;and 2)reversal of US carry trade.Banks are more vulnerable
to adverse impacts on growth,NIMs and asset quality.Competition and bond
issuance can also squeeze NIMs.BBRI is a state-owned bank.With a new
government in place,there can be a change in management and therefore
strategy.Upside risks to our target price include sustained liquidity inflow,
strong loan demand due to benign inflation (consumer/microfinance)and
sharp export recovery (corporate).
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